At issue is the 5-6 per cent of electricity that is lost across the low-voltage networks run by distribution network operators (DNOs). Ofgem sets out financial incentives for DNOs to reduce losses. However, the calculation of losses has relied on uncertain data, and because it is verified by separate “settlement” data from meter reads, the final loss figures take 14 months to calculate.
In recent years, attempts to improve the quality of the data have meant some companies could face inappropriate financial penalties or benefits.
Ofgem has asked the industry whether it should stop applying the incentive until the next price review, when a new mechanism will come into play. The alternative would be to continue with the losses mechanism as it is, which would mean a large programme of work and financial uncertainty for the DNOs.
Richard Hall, head of energy regulation at Consumer Focus, said: “This really matters because a significant proportion of the electricity transmitted over the distribution networks is lost.
“Clearly we wouldn’t want Ofgem to continue with the scheme if it was unreliable, but it must demonstrate that it has a credible plan B to replace it with.”
This article first appeared in Utility Week’s print edition of 13 July 2012.
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